Cement prices shoot up before monsoon

AHMEDABAD: Cement prices have gone up across the country just before the onset of the monsoon. Cement prices in Mumbai have increased by Rs 8 a 50-kg bag, Rs 10 a bag in South India and Rs 3 a bag in Gujarat in the past week.

The cost per bag has shot up by 55% from Rs 145 in December to Rs 225 now in Mumbai. In Gujarat, the price has jumped from Rs 160 to 193 per bag in the last six months time for a truckload, while it is Rs 210 per bag for lesser quantities.

Cement companies have hiked prices in spite of commerce minister Kamal Nath asking them to reduce it last month. Surprisingly, the latest hike has been effected even as the monsoon season is setting in and cement consumption is supposed to go into a lean period. But experts said that a delayed monsoon has come as an opportunity.

“This sort of hike in prices is totally unjustified. Higher cost of construction will hit the entire Indian economy,” said Raju John, executive secretary of the All India Builders Association. He said that cement producers are moving as per a pre-arranged pricing mechanism. “How can companies with different plants, input costs as well as technology sell cement at nearly the same price?” he questioned.

While some builders are able to absorb the regular hikes in cement prices, those working on contracts with fixed prices and no escalation cost built-in have been hit hard on the margins front. “The cost of construction has risen by nearly 30% in the last few months,” said Mr John.

DLF Commercial Developers executive director-projects, Ravi Kachru, told ET that there is a tremendous demand for commercial and residential properties, so the higher cement prices will get absorbed. “We use latest techniques like post-tensioning sytem to reduce cement and steel consumption. We also focus on faster delivery so as to reduce our total expenditure,” said Mr Kachru. Inventory has been brought down by keeping two days stock now instead of seven days previously.

“The construction cost goes up by 5.5% to 8% on every Rs 10 increase per 50 kg cement bag, depending on the glass facade used,” said Mr Kachru.
Ahmedabad-based builder Gnanesh Bhagat of Yash Shelters told ET that the construction cost per square yard for residential properties has gone up from Rs 4,000 per square yard to Rs 6,500-7,000 per square yard in the last one year.
One real estate developer said that with rising income levels, there is a huge demand for properties in large cities. Quoting a McKinsey study he said that while the GDP growth in Tier-II cities is around 8%, it is a huge 20% in the metros. So, higher cement prices will not have much of an impact in big cities.